Industry, business leaders unhappy

Business leaders and industry bodies on Tuesday expressed their disappointment over the Reserve Bank of India's (RBI's) decision to keep interest rates unchanged, but said the decision reflected that the central bank would be open to softening of monetary policy in the near future in sync with fiscal deficit measures.

The Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) said that the cut in the cash reserve ratio by 25 basis points or 0.25 percentage points would provide flexibility to banks to lend more to productive sectors.

The reduction in CRR is expected to infuse an additional liquidity of Rs. 17,500 crore into the system.

While most bankers said the it would be difficult now for the RBI to act unless inflationary pressures eased, State Bank of India chairman Pratip Chaudhuri expressed his disagreement with the central bank on CRR.

Underlining that several rounds of rate hike by the RBI have failed to contain prices, Chaudhuri said CRR was a "waste" for the economy.

"I had expected a 50 basis points CRR cut, I still hold that CRR is a waste for the economy."

"The policy indicates the clarity of thought at the RBI - unless twin deficit risks for India come off significantly, it could continue to be difficult for the RBI to bring down repo rate," said Indranil Pan, chief economist, Kotak Mahindra Bank.

FICCI said though a cut in rate is imperative to revive investment growth, there would be some leeway now for banks to lend more.

"CII hopes that the RBI would intervene sooner than later to cut repo rate and help the process of an industrial and investment revival," said Chandrajit Banerjee, director general, CII.